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Aramco Sees Nearly Enough Early Orders to Pull Off IPO

Archana Narayanan, Matthew Martin and Dinesh Nair
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Aramco Sees Nearly Enough Early Orders to Pull Off IPO

(Bloomberg) -- Saudi Aramco’s bankers are seeing sufficient early demand to pull off the state oil giant’s initial public offering just three days after launching the deal, people with knowledge of the matter said.

The IPO arrangers are indicating in private discussions that they already have nearly enough orders to cover the institutional portion of the deal, the people said, asking not to be identified because the information is private. They still have more than two weeks to go, as fund managers can subscribe to the stock until Dec. 4, according to Aramco’s prospectus.

Building early momentum is important in large equity offerings, as investors are encouraged to jump in when they see other institutions rushing to buy shares. The precise amount of real demand will only become clear later once underwriters compare the orders they’ve received, the people said.

Saudi authorities have been pulling several levers to try and make the deal a success, pressuring the kingdom’s richest families to invest and loosening margin lending rules for banks. They’ve been negotiating commitments from the billionaire Olayan family, who own a major stake in Credit Suisse Group AG, and Saudi Prince Alwaleed Bin Talal, Bloomberg News reported earlier this month.

Domestic Pitch

Aramco representatives have also been seeking investments from the Almajdouie family, who distribute Hyundai Motor Co. vehicles in the kingdom, and members of the Al-Turki clan, people with knowledge of the matter have said. Saudi Arabia is seeking to sell about a 1.5% stake in Aramco at a valuation of as much as $1.71 trillion, with proceeds going to the country’s sovereign wealth fund.

About a third of the offering has been set aside for retail investors. Aramco, officially known as Saudi Arabian Oil Co., declined to comment.

The Wall Street banks working on the transaction are set to lose out on a highly anticipated fee windfall after the deal was pared back from a record global offering to a mainly domestic affair. The foreign underwriters will be compensated for costs but may not be paid enough to make a meaningful profit from the deal, people with knowledge of the matter said.

Goldman Sachs Group Inc. and Morgan Stanley are among the banks that may miss out on the payday. Aramco was initially expected to pay $350 million to $450 million to the more than two dozen advisers on the deal, including banks, lawyers, marketing firms and advertising agencies, Bloomberg News reported in October.

After senior bankers delivered pitches that Aramco would be able to the achieve Crown Prince Mohammed bin Salman’s $2 trillion target with a 5% sale, the Saudi government and Aramco management are frustrated Wall Street’s biggest names were unable to deliver on those ambitions.

(Updates with chart.)

To contact the reporters on this story: Archana Narayanan in Dubai at anarayanan16@bloomberg.net;Matthew Martin in Dubai at mmartin128@bloomberg.net;Dinesh Nair in London at dnair5@bloomberg.net

To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, ;Stefania Bianchi at sbianchi10@bloomberg.net, Matthew Monks

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